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SUBJECT MANAGING FINANCE SETTING AND ACHIEVING BUDGETS Question 1 Advantages of budgets Advantages of budgets Within the context of the quotation Fail to plan is a plan to fail by looking at the advantages of a budget we would be able to see how this is very true There are number of reasons why it is useful for the company to produce budgets The advantages of budgets which are often mentioned in accounting literature are as follows To aid the planning of a companys annual operations To coordinate the activities of different parts of the organisation and to harmonise the functions of those parts To communicate plans to the various section managers To motivate managers to strive to achieve the organisational goals To control activities To evaluate the performance of managers Planning In most cases management has already made the most important decisions of the companys future as a part of their long-term planning The budgeting process specifies those qualitative plans and translates them into a quantitative format It makes managers plan for the following years operations more closely They have to consider how conditions in their business field might change in the next year and how they should react to those changes Co-ordination Co-ordination is the meshing of all factors of production or services and of all departments and functions so that the company can meet organisation objectives Co-ordination means for example that the purchasing department integrates their purchases with production requirements or the sales department does not increase its sales to a level that the production department cannot handle The budgeting process makes managers think about the relationship of their own operations to other departments and to the whole company Through the budget all the actions of the various parts of the organisation are gathered and fit into a common plan The budgeting system helps the organisation to co-ordinate the different activities and

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